A blog of the Association of Research Libraries Influencing Public Policies strategic direction.

Tag Archives: first sale

*Guest blog post by Jonathan Band, Counsel to the Library Copyright Alliance, which consists of the American Library Association, the Association of College and Research Libraries, and the Association of Research Libraries*

Summary

The U.S. Court of Appeals for the Second Circuit has finally issued its long-awaited decision in Capitol Records v. ReDigi. The Second Circuit affirmed the district court’s finding that the ReDigi service, which allowed the resale of iTunes files, infringed copyright. The Second Circuit’s reasoning clearly closes the door on the concept of digital first sale in a commercial setting. It also raises questions concerning the viability of Controlled Digital Lending (“CDL”) by libraries. Accordingly, CDL initiatives must be carefully reevaluated in light of this decision.

The Second Circuit affirmed that the first sale right, codified at 17 U.S.C. 109(a), is a limitation on the distribution right, not the reproduction right, and thus does not provide a defense to the making of copies during the course of the sale of digital files.

The court rejected ReDigi’s argument that fair use permitted any copies it made.

The decision is problematic for CDL for two reasons:

The decision is the most analogous precedent to the library sharing of digital files of copyrighted works; and

The decision could be read as implicitly rejecting the cornerstone of CDL’s fair use argument: that the first sale right should have a positive influence on the analysis of the first fair use factor.

Libraries need to consider whether their CDL programs are likely to pass muster under a more traditional fair use analysis that does not rely on section 109 exercising a positive influence on the first factor.

Background

The now defunct ReDigi service allowed a consumer to sell iTunes music files to other consumers. Under ReDigi’s technology, the music file on the seller’s server was broken into small packets, which were transferred one at a time to ReDigi’s server. When a packet was transferred from the seller’s computer, it was deleted from her computer. The same process was repeated when the file was transferred from ReDigi’s server to the buyer’s computer.

Capitol Records and other record labels sued ReDigi for copyright infringement. In 2013, the district court rejected ReDigi’s first sale defense on the grounds that the first sale doctrine is an exception to the distribution right and not the reproduction right, and ReDigi’s technology infringed the reproduction right. Further, the district court rejected ReDigi’s fair use defense with little discussion, noting that ReDigi’s use was commercial, non-transformative, and harmful to the market for music files.

The Second Circuit held a marathon two-hour oral argument on August 22, 2017. On December 12, 2018, the Second Circuit affirmed the district court’s decision with an opinion written by Judge Leval, one of the country’s leading copyright jurists.

Judge Leval’s Opinion

Judge Leval agreed with the district court that the first sale doctrine provided ReDigi with no defense against Capitol’s claim that ReDigi infringed its reproduction right; the first sale doctrine was a limitation on the distribution right, not the reproduction right. Judge Leval then turned to ReDigi’s contention that it had not infringed Capitol’s reproduction right. ReDigi noted that in its system, each packet was deleted from the seller’s computer as soon as it was transferred to ReDigi’s server. Accord to ReDigi, at no time was there a copy of a file on both the seller’s computer and ReDigi’s server. ReDigi argued that this meant that it didn’t reproduce the file, but just transferred it. Judge Leval rejected this interpretation, finding that the “phonorecord”—a defined term in the Copyright Act–that ended up on ReDigi’s server was a different “material object” from the phonorecord that had existed on the seller’s computer. Additionally, Judge Leval observed that as a factual matter, ReDigi could not ensure that a user had not retained duplicates stored on devices other than the computer on which the user installed the ReDigi software.

Next, Judge Leval considered whether the creation of this new phonorecord was a fair use. His analysis of fair use was more thorough and thoughtful than the district court’s, although he reached the same conclusion. He focused on the first and fourth factors, the purpose and character of the use and the impact of the use on the market for the work. His first factor analysis centered on whether the use was transformative—whether the use “adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message, that than merely superseding the original work.” He explained, “uses that criticize, comment on, provide information about, or provide new uses for the copyrighted work are those likely to be deemed transformative.”

To this familiar list of utility-expanding uses Judge Leval added the Supreme Court’s decision in Sony v. Universal, where the Court found that fair use permitted a consumer to record a television broadcast for viewing a more convenient time. Sony typically is treated as a paradigmatic example of a non-transformative fair use. Judge Leval, however, endorsed the Second Circuit’s interpretation earlier this year in Fox News v. TV Eyes that the consumers’ use in Sony was transformative: a use may be fair “if it utilizes technology to achieve the transformative purpose of improving the efficiency of delivering content without unreasonably encroaching on the commercial entitlements of the rights holder.”

Judge Leval found that ReDigi’s use was not transformative because “it provides neither criticism, commentary, nor information” about copyrighted works. Moreover, it did not “deliver the content in a more convenient and usable form to one who has acquired an entitlement to receive the content.” Instead, it just provided “a market for the resale of digital music files, which sales compete with sales of the same recorded music by the rights holder.” Further tilting the first factor against fair use was the commercial nature of ReDigi’s activity.

After cursory treatment of the second and third factors, the nature of the copyright work and the amount and substantiality of the portion used, Judge Leval examined the fourth factor, the effect of the use upon the potential market for or value of the copyrighted work, in more detail. Judge Leval noted that ReDigi made reproductions for “the purpose of resale in competition with the Plaintiffs’ market for the sale of their sound recordings.” ReDigi sold its copies “to the same consumers whose objective in purchasing was to acquire Plaintiffs’ music.” Judge Leval also distinguished the resale of physical copies from digital copies. “The digital files resold by ReDigi, although used, do not deteriorate the way printed books and physical records deteriorate.” The only difference between the copies sold by Capitol and the copies sold in ReDigi’s secondary market was that ReDigi’s copies were less expensive.

Judge Leval then weighed the four factors together. He found that “even if ReDigi is credited with some faint showing of a transformative purpose, that purpose is overwhelmed by the substantial harm ReDigi inflicts on the value of Plaintiffs’ copyrights through direct competition in the rights holders’ legitimate market, offering consumers a substitute for purchasing from the rights holders.”

At the end of the opinion, Judge Leval considered an argument raised in an amicus brief by copyright law professors that the first sale doctrine “must be read to vindicate purchasers’ ability to alienate digital copyright works…without regard to technological medium.” Judge Leval expressed reluctance to wade into this policy argument. “Courts are poorly equipped to assess the inevitably multifarious economic consequences that would result from such changes of law.” Furthermore, reading section 109(a) to accommodate digital resale “would exceed the proper exercise of the court’s authority.” Here, “Congress dictated the terms of the statutory entitlement.” Section 109(a) clearly “negates a claim of unauthorized distribution in violation of the author’s exclusive rights…but not a claim of unauthorized reproduction.” Accordingly, “if ReDigi and its champions have persuasive arguments in favor of the change of law they advocate, it is Congress they should persuade.

Implications for Libraries

The ReDigi decision requires reevaluation of CDL initiatives. The decision is the most analogous precedent to library sharing of digital files of copyrighted works. To be sure, a library would engage in CDL for noncommercial educational purposes, in contrast to ReDigi’s clearly commercial motivation. Moreover, a library could design its CDL program to make it as different from ReDigi’s as possible. For example, the library might engage in CDL only with respect to out of print scholarly monographs. Nonetheless, libraries cannot ignore the long shadow cast by the decision.

Furthermore, the decision calls into question the theoretical underpinnings of CDL. Specifically, CDL relies on the fair use right to replicate the first sale right in the digital environment. Judge Leval’s decision, however, could be read to suggest that the objectives of the first sale right cannot guide the fair use analysis.

The Library Copyright Alliance (“LCA”) filed an amicus brief in support of ReDigi, where we argued that the similarity between the use ReDigi sought to make and uses authorized by section 109(a) should have tilted the first fair use factor in favor of ReDigi. We noted that in Authors Guild v. HathiTrust, the Second Circuit used the rationale for a specific exception—17 U.S.C. § 121, which permits the making of accessible format copies for people who have print disabilities—to support a finding of a valid purpose under the first factor. Likewise, the Copyright Office has repeatedly based fair use conclusions on specific exceptions in the context of a rulemaking under section 1201 of the Digital Millennium Copyright Act, 17 U.S.C. § 1201. We urged the Second Circuit to recognize that the purpose behind the first sale right favored ReDigi in the first fair use factor analysis.

Unfortunately, Judge Leval did not address this argument. The lack of reference to this argument is somewhat surprising given that it was based on the Second Circuit’s reasoning in the HathiTrust decision, and that the Association of American Publishers filed an amicus brief specifically responding to LCA’s brief. Moreover, fair use was the obvious means of addressing the policy concerns raised by the copyright law professors in their amicus brief. Fair use could achieve the objectives of the first sale doctrine in the digital environment without Congress amending the statute.

In one passage, Judge Leval arguably disagreed with this argument. When responding to the law professors’ suggestion that section 109(a) be interpreted to apply in the digital context, Judge Leval stated “the copyright statute is a patchwork, sometimes varying from clause to clause, as between provisions for which Congress has taken control, dictating both policy and the details of its execution, and provisions in which Congress approximatively summarized common law developments, implicitly leaving further such developments to the courts. The paradigm of the latter category is § 107 on fair use.” This could be interpreted to imply that specific exceptions should not influence the first factor analysis—that specific exceptions and fair use should each stick to their own lanes.

On the other hand, by not rejecting it, Judge Leval arguably allowed the argument to live to fight another day. Additionally, Judge Leval’s copyright patchwork argument really doesn’t make much sense. The first sale right is a judge-made doctrine which was codified in section 109(a), just as the fair use right is a judge-made doctrine which was codified in section 107. Thus, it is completely appropriate for a court to consider the principles underlying the first sale right when applying the fair use right.

The status of the argument is particularly significant for libraries interested in engaging in CDL. CDL relies heavily on the notion that fair use enables libraries to replicate the first sale right in a digital context. In their White Paper on Controlled Digital Lending of Library Books, David Hansen and Kyle Courtney state,

The core concept with CDL is that it closely mimics the economic transaction that Congress has already provided for through the first sale doctrine under Section 109. The purpose of the use with CDL is to fulfill the statutory objectives and balance of rights already identified by Congress in Section 109, effectuating that balance considering a new technological use not contemplated at the time Section 109 was enacted. The crux of the proposition is that the purpose and intent of Section 109 should positively influence the “purpose and character” assessment in the fair use analysis.

This, of course, is the same theory LCA articulated in its amicus brief. LCA still believes this theory is correct, and will continue believing in its correctness unless and until the Supreme Court explicitly rejects it. However, Judge Leval’s failure to even acknowledge the theory when he had the opportunity to do so should cause libraries to reevaluate their CDL initiatives. In particular, they need to consider whether their CDL programs are likely to pass muster under a more traditional fair use analysis that does not rely on section 109 exercising a positive influence on the first factor.

Today the Department of Commerce Internet Policy Task Force today released its White Paper on Remixes, First Sale, and Statutory Damages. (This follows on from the Green Paper issued in 2013.) The Task Force has proposed several significant changes to statutory damages. It recommends that the statutory damages provision be amended: 1) to incorporate a list of factors for courts and juries to consider when determining the amount of a statutory damages award; 2) to expand the eligibility for lower innocent infringement awards when the copyright owner uses a copyright notice; and 3) to give courts discretion to assess statutory damages other than on a strict per-work basis in cases involving non-willful secondary infringement for online services offering a large number of works. These changes, if adopted, would make the statutory damages framework much less burdensome. The Task Force does not recommend any statutory changes relating to remixes or digital first sale, but it proposes multi-stakeholder negotiations related to these issues. The White Paper contains numerous references to comments submitted by the Library Copyright Alliance (which consists of ARL, ALA, and ACRL) and individual libraries.

The message at the beginning of the White Paper from Commerce Secretary Penny Pritzker states that “a healthy copyright system strikes important balances between rights and exceptions–delineating what is protectable and what is not, determining which types of uses require permission or payment, and establishing appropriate frameworks to effectively protect rights and foster creativity and innovation. These balances must be reviewed regularly to ensure they continue to function well as a foundation for America’s culture and economy.”

Digital First Sale. The Task Force does not recommend statutory amendment to facilitate digital first sale. It says that it was hard to measure the extent of consumer loss resulting from the absence of a digital first sale provision. Further, it feels that the market has responded with business models such as providing access to large quantities of digital works, e.g., Netflix. At the same time, digital first sale could cause harm to the primary market. Accordingly, the Task Force sees no need to amend the Act at this time.

However, the Task Force notes the problems libraries had experienced with the lending of e-books. The Task Force observes that the situation appears to be improving, and that government intervention could interfere with the development of innovative solutions. However, “if over time it becomes apparent that libraries have been unable to appropriately serve their patrons due to overly restrictive terms imposed by publishers, further action may be advisable (such as convening library and publisher stakeholders to develop best practices, or amending the Copyright Act).” Similarly, the Task Force recognizes that publishers might interfere with library preservation. This could be addressed, if necessary, in the context of updating section 108.

Remixes. The White Paper does not recommend any statutory changes to facilitate the creation of remixes. The Task Force recognizes that fair use is the central mechanism for permitting remixes, and believes that fair use performs this job well. It rejects compulsory licensing schemes as unnecessary. At the same time, the Task Force has suggestions for making it easier for remixers to understand what uses are fair and to obtain a license when they wish to do so. While recognizing the role of single sector best practices (e.g., the best practices organized by AU), it expresses a preference for negotiated guidelines for remixing. Although acknowledging the challenge of different stakeholders reaching an agreement on guidelines, it believes they are achievable if the scope of any guideline is narrow enough.

The Task Force also encourages the development of voluntary licensing systems. It acknowledges the concern the Library Copyright Alliance raised that licensing systems might undermine fair use, but disagrees with that assessment in a helpful way. In essence, it argues that the fourth fair use factor receives less weight in cases of transformative uses. Thus, the existence of a licensing system should not weaken a remixer’s fair use argument.

The Task Force recognizes that users would benefit from clarification of the terms of EULAs, and recommends a multi-stakeholder process for better communicating terms to the public (e.g., developing standardized notices or alternatives to a “buy” button).

Statutory Damages. As noted above, the White Paper’s most important contribution is in the area of statutory damages. The Task Force recognizes that the existing framework can be applied inconsistently because courts and juries have insufficient guidance. Moreover, the potential of draconian damages deters development of innovative technologies. At the same time, the Task Force does not seem convinced that there was a copyright troll problem.

The Task Force’s first proposal is to codify model jury instructions concerning statutory damages adopted by several circuits. The instructions include a list of factors to consider when determining the amount of a statutory damages award. These factors would help insure that the damages award is related to the actual harm and that the defendant’s state of mind and financial condition are given appropriate weight. These factors would improve consistency and transparency in the application of statutory damages.

The second proposal is to expand the eligibility for lower innocent infringement awards ($200 as opposed to $750). Currently, under sections 401(d) and 402(d), the innocent infringer defense is not available when the copyright owner places a copyright notice on the work. The Task Force proposes eliminating the preclusive effect of notice on the innocent infringement defense. At the same time, the Task Force rejects the Library Copyright Alliance proposal to expand the remission of damages when a library or archives has a good faith belief that its copying was a fair use. Currently, this provision applies only to the reproduction right, not the other exclusive rights. The Task Force believes that the libraries had not demonstrated need for this amendment. If the problem becomes more evident, the Task Force suggests addressing it in the context of section 108 reform.

The third proposal is to give courts discretion to assess statutory damages other than on a strict per-work basis in cases involving non-willful secondary infringement for online services offering a large number of works. This would reduce the threat statutory damages pose to innovative Internet companies.

Finally, the Task Force expresses support for the establishment of a small claims court for copyright infringement. The Task Force evidently believes that such a court could benefit defendants by diverting smaller cases away from a venue where significant statutory damages can be assessed.

On August 25, 2015, the Computer and Communications Industry Association (CCIA) released its White Paper, Copyright Reform for a Digital Economy. The report notes that the House Judiciary Committee began comprehensive copyright review in 2013 and points out that new technology has changed the way creative industries and communication operate. For example, the growth of the Internet has lowered the cost of distribution and “radically changed the economics of scholarly communications and other educational resources. This, in turn, has allowed open access business models to flourish in these markets.” The report points out the importance of balance and “any copyright reform should acknowledge the significance of doctrines ensuring copyright flexibility, particularly limitations and exceptions like the fair use doctrine and first sale.”

Among the highlights, the report points out:

The principle of copyright remains an important tool in the Government’s toolbox to promote scientific, cultural and economic progress, but in current practice, the complex, opaque, and highly concentrated U.S. system is increasingly incapable of facilitating certain socially and economically desirable uses. Easily navigated only by the most experienced corporate actors, the credibility of the copyright system is being tested as it leaves ‘”consumers and other private citizens…increasingly frustrated.”

With respect to fair use, the report cites studies done on the fair use economy pointing out the significant role industries relying on limitations and exceptions have played in growing the US economy. The report continues,

[P]rotection exceeding the amount necessary to incentivize innovation represents a deadweight loss to the economy. Limitations and exceptions help minimize the deadweight loss, and several, such as the fair use doctrine, provide breathing room for new innovations.

The report goes on to point out that fair use is not limited to the technology sector and has been successfully relied upon by “theatre producers, artists, movie studios . . . patent lawyers, rock bands and an NFL football team.” In other words, as pointed out in the Fair Use Fundamentals infographic created for last year’s Fair Use Week,* fair use is relied upon by everyone. While the report notes the importance of fair use, it does not recommend reform of the doctrine but instead cautions Congress to consider the

other reforms [that] may affect the fair use doctrine, and potential effects on fair use should be considered in any reform. For example, increasing statutory damages may deter socially desirable fair uses, and allowing DMCA abuses to continue unchecked may prevent fair use criticism, commentary and political speech. Because fair use is so integral to the fabric of the Copyright Act, it must be a central consideration in any legislative effort.

In addition to fair use, the report also emphasizes another important limitation in copyright law: the first sale doctrine.

With respect to other areas under consideration for copyright reform, the report points out that safe harbors in the online environment have ensured predictability, but suggests that safe harbors could be strengthened. It also points out that the DMCA takedown process can be misused.

The report also points out the chilling effect of statutory damages which has led to copyright trolling. It notes, “regardless of the propriety of the remedy, however, to whatever extent statutory damages deter misbehavior, they also deter investment by creating substantial uncertainty and risk.” The report cites several suggestions by scholars to reduce statutory damages and also pointing to a proposal

to generally remit statutory damages in cases where defendants can demonstrate a reasonable good faith belief that their activity was a fair use (or perhaps covered by any defense). Section 504(c)(2) already has exactly this provision, but limits it to nonprofit educational institutions, libraries, archives and public broadcasters. Because deterrence is inappropriate where a defendant had a reasonable good faith belief that their conduct was non-infringing, this provision could be extended to all good faith actors. In the rare case where this might leave plaintiffs under-compensated, they could still obtain actual damages and injunctions.

The report also points out that international agreements can constrain reforms. For example,

extraordinarily long copyright terms are also a result of international agreements, which have extended the copyright term to last for the life of the author, plus an additional 50 years (in the case of the Berne Convention and TRIPS) or the life of the author plus an additional 70 years (in the case of the free trade agreements). This exacerbated the orphan works problem while diminishing the ability of artists to make productive uses of older works, e.g., new performances of older plays. The Supreme Court has validated the most recent extension in Eldred v. Ashcroft, notwithstanding economic studies showing that extending the term of protection from 56 years to life plus 50 or 70 years does not measurably incentivize additional creative activity.

It is no exaggeration to say that international copyright treaty obligations have contributed to a legitimacy crisis in the contemporary copyright system. Survey data suggests there is a declining public respect for copyright. Terms extending well over a century have been the source of high-profile disputes casting copyright in a poor light, and when combined with the absence of formalities, exceptionally long terms have proven to be a significant problem for researchers, historians and preservationists, among others.

Another problem the report highlights i the relationship between contract and copyright, where license terms may override limitations and exceptions. The report points to proposals against “contracting out” in the United Kingdom, Ireland, and Australia and concludes that “effective copyright law reform must recognize that Congress’s intentions can be subverted through contract, and that licensing agreements between competitors can give rise to substantial market power.” Likewise, the report notes that “substantial aspects of copyright reform could be rendered largely irrelevant if rightsholders can control all uses via TPMs.”

It’s Copyright Week, a series of actions and discussions supporting key principles that should guide copyright policy. Every day this week, various groups are taking on different elements of the law, and addressing what’s at stake, and what we need to do to make sure that copyright promotes creativity and innovation! Today’s topic is “Fair Use Rights: For copyright to achieve its purpose of encouraging creativity and innovation, it must preserve and promote ample breathing space for unexpected and innovative uses.”

In 2014, courts gave us some wonderful fair use cases, including several dealing with creation of searchable databases. In Authors Guild v. HathiTrust, for example, the Second Circuit strongly affirmed the right of fair use, finding in favor of HathiTrust’s creation of a full text search database and provision of accessible formats for the print disabled. In the long-awaited opinion White v. West Publishing, the Southern District of New York affirmed that ingesting briefs into a search database was a new use with a different character from the original briefs. Fox News v. TVEyes provided yet another case in which aggregating copyrighted works into a searchable database, this one dealing with video and audio works rather than text, was affirmed as fair use. For more fair use cases from last year, Dan Nabel, guest posting on Eric Goldman’s blog, has a great roundup of the top ten cases in 2014.

Just weeks into 2015, the Central District of California has already decided at least two new cases with fair use components (both cases involved several other copyright and contractual issues), finding largely in favor of fair use.

Rosen v. eBay — Photographing physical works for the purpose of re-selling the physical works

This case involves a lawsuit by Barry Rosen, a professional photographer, against eBay asserting, among other issues, that photographing physical magazines containing his images and posting them on eBay’s auction site violated his copyright. eBay argued that a photograph of the physical magazine was fair use.

The district court found that the photographs of the magazine “as used to represent physical magazines for resale, constitutes fair use.” It found that the use was transformative because while the original photographs were created for artistic purposes, the photographs of the magazines were used to provide information as to the condition and content of the magazines being sold. The court noted that, “the public also benefits greatly from being able to evaluate the magazines offered for sale legitimately under the first sale doctrine.” The court also found that photographing the magazine was necessary for its purpose and that the effect on the market was minimal.

Furthermore, the court rejected Rosen’s claim that fair use applies only to certain types of infringement and “the fair use doctrine applies to all forms of use of copyrighted works.” Holding otherwise, the court stated, “would drastically limit the ability of any person to resell any visual copyrighted work except to those in the physical presence of the work.”

Fox Broadcasting v. Dish Network — Time-shifting and place-shifting

Dish Network offered services that record television shows and skip over commercials, asserting that such technology was fair use, and was subsequently sued by various networks. The case involved a number of copyright and contractual issues; while the court found largely in favor of fair use for time-shifting and place-shifting technology, it also found that Dish Network may be liable for breach of contract.

The district court found that the “PrimeTime Anytime” service, which allowed users to record prime time television shows and skip over the commercials, constituted fair use under Universal Studios v. Sony (the “Betamax” case in which the Supreme Court ruled that videotaping a television broadcast was fair use). The district court summarized, “Sony established that it is fair use for users to make individual copies of television shows from broadcast television for purposes of noncommercial, nonprofit time-shifting.” The district court found that even though a market exists in which Fox licenses its programming to third parties to be distributed commercial-free, DISH’s PrimeTime Anytime service constituted fair use because the service did not compete with this market. The court noted that DISH subscribers had access to other services to record programming manually using other DVR technologies and that the recordings through the PrimeTime Anytime service was only available for eight days unless the subscriber affirmatively saved the recording in another folder. The district court then concluded that “The potential for market harm to the secondary market for Fox’s program caused by PTAT alone is simply too speculative to defeat a finding of fair use by a time-shifting technology which enhances consumers’ non-commercial private use of recorded programming.” While finding in favor of fair use of the PTAT technology, however, the court ruled against fair use for the copies DISH made as “quality assurance” copies finding that they were non-transformative.

After ruling in favor of DISH’s time-shifting technology, the court also noted that place-shifting is fair use: “Hopper Transfers is a technology that permits non-commercial time- and place-shifting of recordings already validly possessed by subscribers which is paradigmatic fair use under existing law. See Recording Indus. Ass’n of Am., 180 F.3d at 1079 (making copies ‘in order to render portable or ‘space shift’ those files that already reside on a user’s hard drive . . . is paradigmatic noncommercial use.” While this use is itself a fair use, however, DISH may have violated its contractual agreements with Fox.

These first fair use cases of 2015 involve vastly different circumstances, but highlight the importance of the fair use right. Fair use, working in tandem with the first sale doctrine, can provide information to the public about the quality of an item being sold. It can also provide valuable services with new technologies to consumers. As these cases demonstrate, fair use is relied upon every day and the doctrine helps balance copyright law. Of course, fair use extends far beyond the scope of these cases.

As an extremely crucial right touching upon so many facets of every day life, fair use deserves to be highlighted multiple times and we hope you will join us in celebrating this important doctrine during the upcoming Fair Use Week! More information on Fair Use Week 2015, which will be held February 23-27, is available here.

On Monday, June 2, 2014, the U.S. House Committee on the Judiciary, Subcommittee on Courts, Intellectual Property and the Internet continued with its copyright review with a [field hearing held in New York, NY](Greg Cram of The New York Public Library to Represent Library Perspective on the First Sale Doctrine at House Judiciary Subcommittee Hearing). This hearing focused on the first sale doctrine, a principle that provides that after the first sale of a lawfully made copy of a copyrighted work, the copyright holder’s distribution rights in that particular copy terminate.

The panel included nine witnesses: Stephen M. Smith, President and CEO of John Wiley & Sons, Inc.; John Ossenmacher, CEO of ReDigi; Ed Shems of edfredned illustration & graphic design; Jonathan Band representing the Owner’s Rights Initiative, Matthew B. Glotzer, Greg Cram, Associate Director of Copyright and Information Policy at The New York Public Library; Sherwin Siy, Vice President of Legal Affairs at Public Knowledge; John Villasenor, Professor of Electrical Engineering and Public Policy at UCLA Luskin School of Public Affairs; and Emery Smith, Counselor for BSA – The Software Alliance.

The Library Copyright Alliance endorsed Cram’s statement, which highlights the importance of the first sale doctrine to the mission of libraries. Cram also states support for the Supreme Court’s ruling last year in Kirtsaeng v. John Wiley & Sons, applying the first sale doctrine to a lawful physically copy of a work regardless of the place of manufacture or sale. He also discusses the issue of first sale in the context of the digital marketplace.

Importance of First Sale to Libraries

In his statement, Cram notes that throughout American history, even prior to the founding of the nation, libraries have promoted democratic values by lending books and other materials. In discussing the history of libraries providing access to information, Cram quotes Thomas Jefferson: “I have often thought that nothing would do more extensive good at small expense than the establishment of a small circulating library in every county, to consist of a few well-chosen books, to be lent to the people of the county under regulations as would secure their safe return in due time.”

Cram’s statement points out that Americans borrow books and other materials from libraries 4.4 billion times a year and that per capita circulation grew by 26.1% between 2000 and 2009. Between 2008 and 2012, NYPL saw a 44% increase in circulation with 28 million items circulated in 2012. The vast majority of library collections represent physical copies of works, highlighting the importance of the first sale doctrine, without which library lending would not be possible.

Kirtsaeng v. John Wiley & Sons

In his written testimony, Cram expresses support for the Supreme Court’s ruling in 2013 in Kirtsaeng v. John Wiley & Sons, an opinion which found in favor of international exhaustion, a rule applying the first sale doctrine to lawful copies of copyrighted works regardless of the place of manufacture or sale. Without a rule of international exhaustion, library lending would be seriously threatened as more than 200 million books in U.S. libraries have foreign publishers. Books published by U.S. publishers are often manufactured by printers in other countries, often without any indications on the copyright page of where they were printed. As a result, libraries have no way of knowing whether the books were manufactured domestically or abroad. With large portions of collections manufactured abroad, the Kirtsaeng decision is crucial in allowing libraries to continue their acquisition and circulation policies. Cram concludes, “This is the right rule for libraries and for American consumers, and Congress should not disturb it.”

Digital First Sale

Cram’s statement also explains the complexities of the use of digital resources as libraries increasingly license electronic resources. Licenses set the terms under which a library can make the content available and such terms can vary:

Often, the content is hosted on the server of the publisher or other intermediary, and the library is buying access to the server for its users. An authorized user might be able to download the content onto her computer or device, and digital rights management software will allow the content to reside there until it is automatically deleted in accordance with the license term … Currently, for most popular trade titles a library contracts with vendors to enable users to check out a licensed title based on the print “one copy, one user” model. Libraries must license additional e-book files in order to lend to more than one user at the same time. After a prescribed period, the book is automatically returned and becomes immediately available for digital check out by another user. Other licenses might not allow digital download, but instead permit a user to print out a limited number of pages, e.g., a journal article. Other licenses permit users to access content only when the user is connected to the Internet, e.g., streaming access.

While acknowledging that the digital marketplace has provided certain advantages over the traditional model (libraries no longer need to repair torn pages or place the books on a physical shelf), Cram also points out several drawbacks. Under the print model, a book can remain in a library’s collection until it wears out, but in the digital environment, a library can only provide access when it has paid the licensing fees and the terms of renewal licenses may vary. Cram explains that under some licensing models, arbitrary circulation limits are enforced and that license rates for e-books “can be more expensive than its print counterpart, and sometimes more than ten times the consumer e-book price.” Furthermore, some publishers do not license e-books to libraries at all. The current model also raises serious concerns regarding preservation of materials.

With respect to the digital marketplace, the Cram concludes:

Congress needs to consider whether to prohibit the enforcement of contractual limitations on copyright exceptions in certain circumstances. Significantly, the suite of statutory instruments for amending the UK copyright law that will come into force on June 1, 2014, prohibit the “contracting out” of many exceptions in the research and education context. Congress therefore needs to closely monitor the evolving digital marketplace to ensure that it is sufficiently competitive to provide widespread public access to works.

In brief, students, will be required to “buy” a Connected Casebook, which consists of two pieces. First, there is “lifetime access” to a digital version of the casebook, together with various supplementary materials. Second, there is a bound physical version of the casebook, which students can highlight and mark up freely, “but which must be returned to us at the conclusion of the class.”

The obvious goal is to dry up the used book market by draining the supply of used copies. But as Josh points out, it seems unlikely that every student will return the physical book. Rather, reading between the lines, Aspen may argue that the physical book is “licensed” rather than “sold” under the reasoning of cases like Vernor v. Autodesk. The result would be that first sale (the right of the owner of a book, or a DVD, or any other copy of a copyrighted work to resell it freely) would never attach, since the students wouldn’t be “owners” of their physical copies. If Stan Second-Year sells his copy of the new Dukeminier to Fran First-Year, he’d be a copyright infringer in the eyes of Aspen. So too might be Half.com or Barnes and Noble, if they participated in the transaction. Just to make sure that students know they’re only borrowing Aspen’s books and “agree” to those terms, it appears, students will have to purchase Connected Casebook access through Aspen’s website or a participating campus bookstore

As long as you purchased them, they won’t go away. If you bought it, you own it.

Image Comics Director of Business Development Ron Richards explaining why “For the First Time, You Can Actually Own the Digital Comics You Buy.” I bought the latest issue of the Walking Dead (you know, for research…) and was never confronted by any Terms and Conditions limiting my rights to use the files as I would any other computer file that I own.

Now, under the ReDigi decision, you still couldn’t take advantage of many first sale rights because the comics are digital files and can’t be loaned or sold without copying. (Section 109, where first sale lives, only provides owners with an exemption from the distribution and display rights, not the right of reproduction.) Still, DRM-free files you can download and keep is one step closer to real ownership, and a step away from merely licensed access that can be revoked at any time.

IMHO, a library could buy these digital comics and put them on an e-reader device (an iPad, e.g.) and lend the iPad with the file installed. A little wonky, but it looks more like real circulation.

Nowadays in the digital world you can hardly own anything anymore. If you put things in the cloud, someone, somewhere might disappear it and it’s gone forever. When we grew up, ownership was what made America different than Russia.

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Unless otherwise noted, posts after January 10, 2014 are written by Krista L. Cox, Director of Public Policy Initiatives at ARL. Some of the content here will not be written or created by ARL, but rather will be collected from elsewhere on the web. Quotation does NOT imply endorsement!

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02/19/2019 at 3:09pmI first saw this discussed on Twitter, now WaPo has an article on Justice Thomas' concurrence in a denial of cert, but that urges reexamining the 1st & 14th Amendments in libel cases (i.e. a reexamining of NYT v Sullivan) https://t.co/lCwY85MEO0